On 08 24 & 25 the market opened up 2 plus and down 2 minus, and didn't change on my portfolio of 40 stocks. Why? Who skimmed off that money?
The following is a summary of returns on $100 invested in 3 different ways in 1928 (before the crash). The value of each investment in 2014 as follows
US Treasury bills $1,973
US 10 year bonds $6,972
Stocks S&P 500 $289,500
This is why people invest in stocks
US Treasury bills $1,973
US 10 year bonds $6,972
Stocks S&P 500 $289,500
This is why people invest in stocks
The S&P 500 was not created until 1958. Index funds were not created until the mid-1970s. Your figures exclude taxes and commissions--which were quite large. Without index funds, you would have needed to persistently sell losers and buy the winners--and time your trades presciently. During the period you select, countless changes as per the companies that were listed on the public exchanges (e.g., mergers, bankruptcies, delistings, new listings, etc.). Your hypothetical return figures could not and do not represent a simple buy and hold strategy. Rather, they portray a fictional representation promoted by stock merchants who hope that you will not look closely at the data and wild assumptions that provoke such a conclusion as that you parrot. Evidently, their hopes fulfilled.
The idea that the stock market is less risky over time is a classic common misconception in finance. It is disappointing to see it written about in a Column by someone who should know better.
First, showing that at longer horizons you are less likely to loose money IS NOT the right metric. In this exercise the comparison that is being made is between the stock market is putting your money under the mattress and earning zero returns. That is a ludicrous benchmark. Compare instead to risk free assets (government bonds).
Next, counting the number of times you do worse ignores the asymmetry in returns. Markets tend to crash down not up. So even if it is more likely that I gain in 10 years the size of the losses might be much higher than the gains.
It should also be pointed out that making strong statements about long term returns is hard because we have very little evidence. If we take each decade as a data point for what returns can look like we only have about 10 of them. You can't say much based on that. There are fancier approaches and they all return the same basic conclusion - on average you can expect to do better than bonds but risk grows with time not the reverse.
Finally, you may wonder why do advisers recommend people invest more in stocks when they are young? The underlying research that produces this result instead relies on a very different channel: if you loose money on the stock market when young you have more scope to adjust (work longer, save more).
First, showing that at longer horizons you are less likely to loose money IS NOT the right metric. In this exercise the comparison that is being made is between the stock market is putting your money under the mattress and earning zero returns. That is a ludicrous benchmark. Compare instead to risk free assets (government bonds).
Next, counting the number of times you do worse ignores the asymmetry in returns. Markets tend to crash down not up. So even if it is more likely that I gain in 10 years the size of the losses might be much higher than the gains.
It should also be pointed out that making strong statements about long term returns is hard because we have very little evidence. If we take each decade as a data point for what returns can look like we only have about 10 of them. You can't say much based on that. There are fancier approaches and they all return the same basic conclusion - on average you can expect to do better than bonds but risk grows with time not the reverse.
Finally, you may wonder why do advisers recommend people invest more in stocks when they are young? The underlying research that produces this result instead relies on a very different channel: if you loose money on the stock market when young you have more scope to adjust (work longer, save more).
4
Actually the biggest up days are remarkably large and the return compared to other investments is much better.
That said there is definitely risk in the market--and this is compensated for by higher returns. And of course, not everyone can have a decades long time horizon. If you are going to need the money soon, the short term swings matter a lot.
That said there is definitely risk in the market--and this is compensated for by higher returns. And of course, not everyone can have a decades long time horizon. If you are going to need the money soon, the short term swings matter a lot.
check outthe Motley Fool. They counter your arguments with facts.
Watching ESPN is supposed to make you feel better and avoid the pain of loss? Not, for example, if your a Red Sox fan this year!
Instead, as I am actively saving for retirement, I just remind myself that my money will buy me more shares in my next regular purchase - stocks are on sale and I've saved money! Then I feel better.
Instead, as I am actively saving for retirement, I just remind myself that my money will buy me more shares in my next regular purchase - stocks are on sale and I've saved money! Then I feel better.
2
The number I care about is my dividend income, which steadily increases despite the ups and downs of the share price. Some companies with fine business prospects are now yielding close to 4%. I see this as a good time for accumulation over the next few months.
1
Jack, stock prices move because we revise our estimation of the strength of the economy will be in the future. That leads to changes in our forecasts about firm profits and thereby changes in expected dividends. Maybe dividends don't react right away but you can bet that if we have a global recession your dividends will be lower for several years.
Read the article, read the comments and then ask yourself the question: What is the definition of investing?
Today the stock market is ruled by speculators armed with high-speed computerized trading programs that work the minute differences in prices among the various markets. In this market actual investors have to be very careful and realize that the casino is rigged.
The mantra of Buy-low-Sell-high is the mantra of the speculator. Investors look for a payback for their ownership of a corporation, and income stream something upon which to build a future. Unfortunately most corporate boards got rid of dividends a long time ago favoring the speculator and making decisions based on what might happen to the share price as the computer programs read the data.
I learned, many decades ago, that investing should be as exciting as watching the lawn grow. That you need to understand the business before you purchase the stock or their bonds so that you can read their financial filings (most importantly the 10K's and 10Q's).
A solid portfolio that delivers an income stream is the goal. Eventually the sales price of your shares should be the bonus because the investments returned all of your cash, often many times over, before you sell them or hand them over to your heirs.
The traditional approach is difficult today because people seem to prefer puking on the streets outside the exchanges when the sales price of stocks tank. Emotion indeed.
Today the stock market is ruled by speculators armed with high-speed computerized trading programs that work the minute differences in prices among the various markets. In this market actual investors have to be very careful and realize that the casino is rigged.
The mantra of Buy-low-Sell-high is the mantra of the speculator. Investors look for a payback for their ownership of a corporation, and income stream something upon which to build a future. Unfortunately most corporate boards got rid of dividends a long time ago favoring the speculator and making decisions based on what might happen to the share price as the computer programs read the data.
I learned, many decades ago, that investing should be as exciting as watching the lawn grow. That you need to understand the business before you purchase the stock or their bonds so that you can read their financial filings (most importantly the 10K's and 10Q's).
A solid portfolio that delivers an income stream is the goal. Eventually the sales price of your shares should be the bonus because the investments returned all of your cash, often many times over, before you sell them or hand them over to your heirs.
The traditional approach is difficult today because people seem to prefer puking on the streets outside the exchanges when the sales price of stocks tank. Emotion indeed.
2
The stock market is a solid investment over time. No it is not "legalized gambling," but rather participation in the companies listed. Yes, it goes down as well as up. Any investor who has any sense experiences a sense of stomach churn when the market takes a huge drop as it did yesterday. Yet since the point of good investing is to buy low and sell high, a steady investor will keep buying through the trough and buy a little more if possible. If buying is not possible at all (maybe for the retired) than just doing nothing is the wisest course. Money needed in the next few years has no business in the stock market - ever.
Young investors with a long time frame who are regularly putting money in the market (dollar cost averaging, hopefully) should be doing a happy dance as they will get more bang for their buck.
Young investors with a long time frame who are regularly putting money in the market (dollar cost averaging, hopefully) should be doing a happy dance as they will get more bang for their buck.
2
There is so much money looking for a place to earn a return. The US stock market will come back. I don't see any better market. So once the hysteria settles, the good old S & P 500 will look like a good place to invest.
8
If you want to buy, you should probably do so when the price is low...
2
Loss, schmoss. It's an opportunity, and it looks like the bargains are going to get even better.
4
Yes, emotion is a huge factor, and part of the impact comes from many investors not knowing, or having forgotten, why they purchased their stocks. It would be advantageous to log each transaction into a three-ring binder, and include a line or notation describing why a purchase or sale was made. For example, if their Uncle Frank is giving them poor advice, it would be better to figure that out sooner, rather than later.
If they've invested in a company with no debt and lots of cash, that's an important note to have at hand so they don't dump their best stock in a panic some morning.
It can be good to have certain trading rules for oneself, as well. Buy low, sell high - and its corollary of buy on weakness, sell on strength. Rules like those will save your rear end more times than you can count.
If they've invested in a company with no debt and lots of cash, that's an important note to have at hand so they don't dump their best stock in a panic some morning.
It can be good to have certain trading rules for oneself, as well. Buy low, sell high - and its corollary of buy on weakness, sell on strength. Rules like those will save your rear end more times than you can count.
1
If you fail to follow the market, you may miss your chance to buy good stocks at very reasonable prices. Buying good companies at a reasonable valuation is the best way to make money n the long term. Today, every stock is on sale. If you have money and think the prices are good, you should consider making a few purchases.
4
The question is can the average American afford the loss? I'm tired of people like you telling people like me not to worry. It's just my future you're talking about. I lost money back in the early 2000's during the tech bust. I have never ever recovered all that I lost. And unless I am willing to put my money in extremely aggressive, read risky investments it has taken a number of years to get back where I was. Couple this with stagnating and declining wages, fewer or no benefits at all and most of us are not able to just chill out. BTW I don't like ESPN. Remember once bitten. twice shy.
11
Honestly, if you put a significant amount of money into dot com startups in the late 90's, that's no one's fault but your own. That's hardly responsible investing. Remember that the overwhelming majority of Americans don't own any stocks at all, outside of retirement plans. The ones who do tend be rich or over confident, and often both!
1
It was my 401K through my employer which had a variety of investments. As I recall at that time everyone's investments were plummeting like a stone not just mine. My employer's plan did not have any financial advisors for their customers to obtain advice from. They do now but that is because I'm sure that not many people are saving. Also, not being a financial person, I choose not to spend all my waking hours trying to figure out how to invest my money. And even if I did, given the factors of the stock market today I doubt that I could do much better. I'd be much happier if banks, credit unions and other financial institutions offered savings instruments that gave 5 or 6% a year. So I wouldn't have to risk my money in the stock market. After all if banks can charge 20+% on their credit cards when they are getting the money for almost free, then they should be able to pass some of that interest onto savings accounts. Now that I'm retired I'm planning to roll over that 401K to a credit union that does offer a financial advisor. The plan would not allow me to withdraw money so long as I was working there. And BTW there was no employer money involved in my 401K. The money came directly out of my paycheck every month.
1
The stock market is legalized gambling, no two ways about it and the house (the brokerage house) always wins. It's a game I do not play. Tell me again how awesome it would be to privatize social security and defined benefit pensions and give it over to the whims of these gamesmeisters? It's a system that is driven by abject greed that affects every single one of us.
5
"Stocks offer a good bet over the long run." Good use of words, but betting on sports, cards, or other gaming is actually more skill based because you have more information to base your bet on. And the result is tied to reality, not the make believe world of stock picking.
All of the supposed experts tell us there is no way to predict whether the market will rise or fall, but historically it has always gone up over the long-term, so make the bet. Past performance is not guarantee of future performance, but the market will go up because it always does. Until it doesn't.
Just "inhale, exhale, repeat and watch ESPN." If only stock pickers in '29 had ESPN to watch, the Great Depression would have been averted.
All of the supposed experts tell us there is no way to predict whether the market will rise or fall, but historically it has always gone up over the long-term, so make the bet. Past performance is not guarantee of future performance, but the market will go up because it always does. Until it doesn't.
Just "inhale, exhale, repeat and watch ESPN." If only stock pickers in '29 had ESPN to watch, the Great Depression would have been averted.
4
Interestingly, those who did not panic in 1929 and stayed in the market did eventually recover and then do very nicely.
4
Second question: if my time horizon could be longer, how long does it take for the odds to approach nearer to 0, say 5%?
Third question: 1957 to 2015 - were those were those especially good years for the U.S. economy? Has the S&P's performance slowed over that period?